Apparently there is a broad agreement that the US equity markets are up strongly in the past days because of the expectation that Bernanke is going to announce a big program at Jackson Hole. While the potential for this does, of course, exist, and indeed I had a serious look at the issue a few days ago after Bruce Krasting’s ‘plant’ article on ZH, surely just a cursory examination has to convince that there is really very little likelihood of much at all out of Jackson Hole. Doesn’t it? Hard to believe that the market is crediting this rise with such prospects then … hard to believe but seemingly true.
A Dash of Insight (one of my most valued reads) debunks the notion, here:http://oldprof.typepad.com/a_dash_of_insight/2011/08/interpreting-the-market-good-luck.html

Wow! Four powerful opinions — all wrong.

I agree.

BUT …

BUT …

If the broad market consensus is that the market is a buy because of the prospect of a big announcement at Jackson Hole, well it makes sense for a trader to go with this flow. Sure. But there is the question that if its not the prospect of an ‘announcement’ driving the buying, what is? That’s a good question, but its not the one I want to turn to just yet.

I have two other questions.

1. If the market is expecting a big announcement and has bought big time ahead of it, and if more seasoned heads are realising that there ain’t gonna be a big announcement, what happens in the hours leading up to 10am Friday? Surely some profit-taking is to be expected, a sell-off? And in the current fear- and recency effect- driven environment, a sell-off could become nasty quite quickly, couldn’t it?

2. The other question I have is that if the market is expecting a big announcement and has bought big time ahead of it … what’s gunna happen when the announcement doesn’t come? (Keen students of market dynamics will point out that even if a big announcement does come … unlikely but, hey, possible, right … the ‘buy the rumour, sell the fact’ dynamic may well take over and … sell-off ensues).

Hard (for me) to envision a scenario where the result of Friday’s speech is other than a sell-off. (And then the question of what is really behind all the buying becomes important and we see where the bids come back in again, if its ahead of that 1100/10 support level or a bit lower?)

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REMINDER of the SCHEDULE:
Ben Bernanke will give his speech at the Jackson Hole Symposium at 10am (ET) on August 26, 2011.